Opelika Files Chapter 11 Bankruptcy

Chicago-based Textile Firm`s Losses Mounting

Opelika Manufacturing Corp., strapped for cash and unable to meet its hourly payroll last week, said Tuesday it had filed for protection from creditors under Chapter 11 of the federal bankruptcy code.

James Fawcett, vice chairman of the Chicago-based textile firm, said its wholly owned subsidiary, Sew Simple Systems Inc., also had filed for Chapter 11 protection. Under Chapter 11 proceedings, a company continues to operate under court protection while it formulates a plan of reorganization.

Fawcett said the company had recently defaulted on several secured liabilities because of a lack of sufficient working capital and that Thursday it had been unable to pay 1,800 hourly textile workers at plants located chiefly in Alabama, Arkansas and Georgia.

Opelika attributed its lack of working capital to mounting losses, which broadened to $5.4 million during the six months ended March 30 from $1.2 million for the year-earlier period. Sales fell to $25.9 million from $32.3 million.

According to Fawcett, Opelika is in default on $2.4 million of secured debt jointly held by First National Bank of Chicago and Prudential Insurance Co., on $275,000 in its payment for the $2.7 million purchase of Sew Simple and on $650,000 in payments to the Internal Revenue Service.

However, Fawcett said he was optimistic the company eventually would emerge from bankruptcy protection as a healthier, smaller version of itself. He said Congress Financial Corp., which is owed $18 million by Opelika, had agreed to finance its operations during the proceedings.

Chicago entrepreneur Clyde Engle, who through various entities owns about 62 percent of Opelika`s common shares, said Opelika`s troubles wouldn`t affect his other operations because his investment in the company already had been substantially written off the books.

``We thought that it was an undervalued company that could be turned around, but obviously we were wrong,`` said Engle, who`s no stranger to bankrupt companies.

Opelika`s Fawcett said the first-half results, which followed five years of losses totaling $15.3 million, were hurt by foreign competition.

The company said its M. Snower & Co. division, which sells towels and other material to the linen-supply business, was particularly hard hit by foreign competition.

Opelika said it was considering discontinuing its Snower division and concentrating on its more viable segments, such as its Snowflake-Wolf division, which makes kitchen textile products, and its Whitehouse division, which supplies garments to hospitals.